By MIKE STEKETE in The Australian
PAPUA New Guinea has largely slipped off Australian radar screens, even though it is our nearest neighbour and was our responsibility as a former colony.
So you may be surprised to hear that it has bright prospects by developing world standards, which could see it rise rapidly through the ranks. But whether those prospects can be fulfilled, particularly in terms of benefits to the mass of the people, is another matter.
The nation of 6.3 million people is enjoying its longest run of economic growth since independence in 1975, seven years and counting. The government set a target many saw as fanciful: growing by 5 per cent a year after inflation by the end of this decade. This year, despite the international recession, it grew by 6.2 per cent and last month's budget forecast 8.5 per cent next year. But that is just warming up.
A few weeks ago, the PNG government signed a deal that promises to earn $35 billion in the next 30 years through the export of liquefied natural gas. The gas fields are to be developed in the Southern Highlands, with pipelines running 300km to the coast, then another 415km underwater to a processing plant outside Port Moresby, from where it will be exported.
The project, a partnership between ExxonMobil, Australian company Oil Search, the PNG government and others, involves an investment of $16bn; this in a country whose gross domestic product was $13.7bn last year and whose exports are less than $6bn a year. Visitors say signs of the new affluence already are apparent in Port Moresby, with new hotels and expensive housing springing up.
Yet there is a sense of foreboding among many experts on PNG. What are the chance of the benefits from all this development flowing through to the mass of the population?
"Right now, I would say very little," says Jenny Hayward-Jones, a former Australian Department of Foreign Affairs officer who runs the Melanesia program at the Lowy Institute. But, she adds, there is time between now and 2013, when export revenues are due to start flowing, for things to change.
It is just that the past does not provide a great deal of confidence. At the time of independence, PNG ranked 77th out of 150 countries on the UN Human Development Index, which measures not only income but also factors such as education and life expectancy. Now, despite big projects such as Bougainville, Ok Tedi and Lihir, PNG comes 148th out of 182 countries, just above Haiti and Sudan.
Average life expectancy is 54 years and the infant mortality rate 64 per 1000 live births, much worse than the figures for indigenous people in Australia. Using the benchmark of living on less than $US1 a day, 37.5 per cent of people suffered extreme poverty in 2004, compared with 25 per cent in 1996.
Prime Minister Michael Somare bridles at such figures, saying people in the villages always have plenty to eat. But in a paper commissioned by the Lowy Institute, Laurence Chandy, a former senior economist with the PNG government, says those in extreme poverty typically are malnourished, vulnerable to infectious diseases, poor harvests, natural disasters and crime and lack access to jobs, land, education, health care, clean water and transport.
Chandy quotes the PNG government's data: 35 per cent of births are supervised by healthcare professionals, 45 per cent of those of school-leaving age completed primary education and 27 per cent of the road network is considered to be in good condition.
Keith Jackson, a former teacher in PNG who subsequently held a senior position in the ABC, and Paul Oates, a former patrol officer, have calculated that health spending per person in PNG averages $38 a year, compared with $5461 for indigenous people in the Northern Territory.
John Kleinig, a former teacher, says the school where he worked in Rabaul 40 years ago was better resourced than most schools in NSW at the time. A prime mover in a private charitable project in Oro Province that has set up a community-based program to provide resources and teacher training for schools, as well as health and agriculture programs, he says schools these days lack even the most basic resources, such as paper and pencils. "Teachers write lessons on the blackboard because, although textbooks exist, there generally is no money to purchase them," Kleinig says. Staffing schools is a problem, with teachers often suffering from diseases such as typhoid and malaria.
The Chandy paper points out that, despite recent high economic growth rates in PNG, in only three of the past six years have they exceeded the rapid rate of population growth. On one estimate, extreme poverty fell by 8.8 percentage points in the five years to 2008, though this was not enough to make up for the increase in the late 1990s and early part of this decade. Gross domestic product per capita remains below its 1996 level and will not catch up until 2014, assuming the government's growth forecasts are accurate.
Chandy diagnoses PNG's problem as the equivalent of bad circulation. Limited financial development and a rugged geography mean most transactions occur locally. Government revenue in the five years to 2008 rose from 23 per cent of GDP to almost 31 per cent but little has found its way to poor areas. Chandy says lack of public infrastructure isolates the poor and creates "a series of geographical poverty traps".
Some, including an urban elite, are benefiting. So are some landholders: Exxon recently handed out the equivalent of $500 per person to 1000 people under a benefit sharing agreement in an area where the company is building a large airstrip. This is more than the average annual household income of people in the area.
Corruption is one problem in PNG: Transparency International ranks it 151st out of 180 countries and says it is slipping further. The way the government does business does not help. Chandy says it justifies channelling funds, including cash transfers for individuals, through MPs and landowners as the best way of getting money to the poor. This method of distributing funds has grown from 15 per cent to 35 per cent of the development budget but there is no effective monitoring of the spending.
Chandy urges the PNG government to evaluate future foreign investment not just in terms of government revenue but its contribution to creating jobs. In the absence of a radically different approach by government, the LNG project and the high rate of economic growth accompanying it "will reinforce the existing structure of the economy in which the poor are largely excluded".
Canberra has a stake in the outcomes. In line with his penchant for targets, Kevin Rudd has tied future aid to PNG making progress towards achieving the UN's millennium development goals. These include halving the proportion of people living on less than $US1 a day by 2015, cutting the mortality rate of children under five by two-thirds, universal primary education and halting the spread of HIV-AIDS. They are big asks, particularly in the absence of effective leverage by Australia. Somare is looking for the country's coming riches to free PNG from dependence on the annual $390 million in Australian aid.
The time has come to assert more responsibility over PNG's national development, he said earlier this year, and part of that would involve an "aid exit strategy".
Hayward-Jones says that, while this makes sense in the long run, aid from Australia and elsewhere fills the gap in systems that have broken down. "In health, if it wasn't for Australia and other donors delivering medicines and vaccines and other services, a lot more people would be dying," she adds.
Pilot Richard Leahy was transferred to Royal Brisbane Hospital with serious burns. (http://www.pacificwrecks.org: Justin Taylan)
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By REG RENAGI
However, it is important to be vigilant. We must be more aware of the offshore market conditions so we do not rush in without first assessing the market.
The government must do its own due diligence. Its financial advisors must not simply believe everything they are told by the overseas financial institutions until they have done their own investigation.
They must first investigate, analyze and confirm that the source (Banks, finance companies, etc) giving us the offshore option is also applying the same effective strategies themselves, and that the information given is truly genuine, and from reliable financial advice service sources.
There has been a lot of talk in recent years about the benefits of placing funds (whether public, private or individual investors) in offshore funds (companies, trusts and investments). But let’s always be on guard that while some of this information may be correct, a lot of it can also be incorrect.
A common perception prevails that it is expensive, and may not be viable (especially for the average person).
So let us look at some reasons why an offshore funds investing can be an alternative investment choice for PNG.
Firstly, if we structure the offshore company correctly (this is vitally important) we can gain substantial tax benefits.
Second, we can access investments that we may not be able to invest here due to a narrow-base market.
Third, an offshore bank or company also suffers none of the restrictions we may currently have. It can freely invest in these investments that can yield from 25 per cent to several 100 per cent a year.
Presently there may be existing constraints in government regulations regarding foreign prospectuses to anyone here, but can be sent to foreign companies.
What is more, people set up an offshore financial structure (company) to manage investment funds for asset protection, privacy and confidentiality. In as far as international tax planning goes; an offshore funds investment has the advantageous use of foreign jurisdictions and their tax rules for reduction of tax liability.
There is also nothing wrong in keeping the money in our Central Bank, but there may be other inherent technical constraints that may take time to review.
In general, offshore investing is also a good strategy to diversify our country’s investment range. So apart from investing in PNG, it can also be a safe and good investment practice for PNG to have its surplus money in good international funds management jurisdiction.
Here our money is reinvested in several other high-yielding financial instruments to maximize upon good high investment rate of returns many International financial institutions and investment banks offer to its international clients.
On the other hand, while it is not that difficult to set up a Foreign Investment Fund as some people have recently suggested with surplus proceeds from our LNG in PNG, diversifying in an offshore investment opportunity is good investment practice. This way, we are simply not putting all our eggs in the one investment basket.
There are several prudent hedging strategies the government can use. Once done, we can then use creative financing to borrow offshore and loan to smaller
The power of OPM (Other People’s Money) allows the required flexibility to diversify our financial market and hedge against risks of providing offshore loans to other Pacific states. Such an onshore facility allows us to relend at lower but competitive interests rates.
OPM is a preferred option as it is not good investment strategy to use one’s own money, but the banks to leverage favourable interest rates.
Another good way to have a vibrant and diversified financial market is to create a futures market base in PNG.
We can now set up our own commodities futures and options exchange as opposed to the present passive local bourse (PomSox). Once set up, we then gradually and systematically build up a diversified range of investment opportunities onshore. The futures exchange can annually add a variety of new financial instruments for daily trading activity.
A futures exchange allows public (institutional, banks/finance companies, private and individual small-time) investors to do investment trading onshore than overseas. We can create wealth within our country now by trading futures contracts on common commodities like coffee, cocoa, copra, oil palm, crude oil, sugar, orange juice, pork bellies, currencies, financial indexes, to mention just a few.
The exchange can further dual list other commodities commonly traded on overseas futures (and options) exchanges. This will result in a greatly enhanced trading flexibility, increased volume, lower risk hedging factor and high leverage returns for investors; among others.
The government must also consider lowering onshore banking interest rates to around 2.5 and 3 per cent so the majority of our people are fully involved in growing our economy.
More onshore business opportunities can be realized by our people if the government is prepared now by being more innovative and create a vibrant financial market.
The country is ready for other alternative investment choices for our people. This must now be PNG’s immediate wealth creation strategy within the next five years as part of our government’s national strategic wealth plan for Papua New Guineans.
We can no longer wait and watch only foreigners acquire wealth at our expense.